Key Points
- Bitcoin’s value has risen in correlation with buoyant equity markets, anticipating an ECB rate cut.
- Bitcoin could potentially benefit from increased market liquidity due to lower rates in a stimulus-driven environment.
Bitcoin, the world’s largest digital asset, has seen an increase in value, aligning with the positive performance of equity markets.
The value of Bitcoin has risen over 2% in the last 24 hours, with a current trading price of $69,035.
Global Market Performance
Major equity indices in Europe and the UK have also shown green. The FTSE 100 in London saw an increase of 13.48 points, reaching 8,288.86 in early trading. The Stoxx 600 index in Europe also rose, gaining 0.44% to 520.44. Meanwhile, S&P 500 futures in New York increased by 0.15%, and the NYSE Composite increased by 1.3% in pre-market trading.
This positive trend is expected as borrowers in the eurozone are likely to receive relief from high interest rates. With recent drops in inflation, the European Central Bank (ECB) is predicted to lower its benchmark rates. Money markets suggest a 93% chance of an ECB rate cut in the upcoming monetary policy meeting. This could bring down the rate on deposit facilities, used by banks for overnight deposits, to 3.75% from the current record high of 4%.
Bitcoin and Market Liquidity
Historically, the correlation between Bitcoin and equities has been mixed. In times of economic stress, Bitcoin often mirrors stock market trends as investors liquidate assets. However, in a stimulus-driven environment with lower rates, Bitcoin may benefit from increased liquidity. Furthermore, Bitcoin is often seen as a hedge against inflation. If the ECB rate cut raises inflation expectations, it could potentially attract more investment as it is considered “digital gold”.
However, the impact of the ECB rate decision on Bitcoin’s price may be limited. Despite expectations of a rate cut in the EU, these are not typically reflected in Bitcoin’s price movements, primarily due to the relatively small size of the European crypto market. Bitcoin mostly correlates with U.S. equity markets in the medium to long term, although some divergence is possible in the short term. Therefore, a rate cut could stimulate the European equity market, creating positive sentiment in the U.S. market, and indirectly supporting crypto prices in the near term.
